Difference Between Bootstrap Fund and Coinbase Ventures

The initiative is to be called the USDC Bootstrap Fund and will see $1 million USDC invested in both Compound, a money market protocol, and dYdX, a margin trading protocol and open trading platform for crypto assets. The fund differs from Coinbase Ventures, which invests in startups and takes an equity stake, in that it will add to the protocols’ lending pools and return interest when counterparties borrow from it and subsequently reinvest the accumulated interest back into the pools.

What is DeFi?

Decentralized Finance, or DeFi for short, is essentially the implementation of traditional financial tools but built on the blockchain. Sometimes referred to as open finance, which is more encompassing of the focus on financial products, is simply the way to refer to the use and availability of financial products, such as lending and investing, but with crypto assets rather than traditional monies. So, as these financial products are integral components of traditional economies, it’s easy to see why Coinbase is eager to further the growth of these services digitally.

The biggest barrier to growth for DeFi protocols is attracting demand for borrowing. By using USDC, which is a stablecoin powered by Ethereum, Coinbase hopes to drive down interest rates to stimulate demand. Zhuoxun Yin, head of development at dYdX, said “as soon as we invest, the interest rate goes down in the pool itself. But then, what we have seen so far, is largely that borrowers come in and borrow. So the rates have been largely coming back to where they were before.”